ECB: Quo Vadis?

The European Central Bank has implemented a very ambitious monetary policy since the financial crisis of 2008, intervening heavily in the eurozone economies. This policy has generated substantial risks to both the ECB’s primary task and its independence. It is therefore time for a fundamental evaluation of the ECB’s monetary policy strategy.     

Time at risk: Toward a banking titanic?

The Year 2000 problem is quickly becoming known as potentially the biggest challenge in the brief history of information technology. The complexity of the problem is particularly true for financial institutions, such as banks, which rely heavily on information technology and are interconnected and interdependent. This article reviews the millennium problem and its possible implications for banks and financial institutions worldwide. © 1999 John Wiley & Sons, Inc.     

Leaving Welfare: Independence or Continued Vulnerability?

Data from two semi‐structured interviews gathered approximately six months apart from seven women who were receiving cash welfare benefits at the time of the first interview and were not receiving benefits at the second interview were used to analyze the experiences of leaving welfare. Emergent themes about the post‐welfare experience are: (1) the low wages and lack of advancement opportunities in jobs, (2) confusion related to program administration, (3) the continued reliance on income support programs and kin, and (4) the banking of cash benefits under the five‐year time limit as a new safety net.     

Does corporate governance risk at home affect investment choices abroad?

Disparity between control and ownership rights gives rise to the risk of tunneling by the controlling shareholder, and is prevalent in many emerging market economies and present in some developed countries. At the same time, international investors come from different countries whose home markets are characterized by varying degrees of control–ownership disparity. This paper studies whether this difference in investors' home countries affects their portfolio choice in an emerging market. It combines two unique data sets on ownership and control in business groups, and investor-stock level foreign investment in Korea. A key finding is that investors from low-disparity countries disfavor high-disparity stocks in Korea, but investors from high-disparity countries are indifferent. Moreover, investors from low-disparity countries became averse to disparity only after the Asian financial crisis. These results suggest that the nature of corporate governance in international investors' home countries affects their portfolio choice abroad, and therefore these investors should not be lumped together in the analyses of their portfolio choice.     

What's Wrong With the Federal Reserve: What Would Restore Independence?

The actual degree of independence of the Federal Reserve has varied over the years. This paper traces its history and finds that the Federal Reserve has been most successful in its dual full-employment, low inflation mandate when it follows fixed rules, and focuses on the intermediate term rather than trying to react to short-term developments under political pressure. Going forward, monetary policy should emphasize on annual monetary growth more and short-term interest rates less. A number of policies are recommended to support this overall emphasis on intermediate-term stability.     

Power or Economic Law? Fresh Reflections on ECB Policy

Conventional wisdom says that central banks determine interest rate levels. After all, monetary policy set by central banks directly influences money market conditions. But these conditions are also shaped by other actors such as government, manufacturing businesses, commercial banks and non-bank financial institutions, as well as by monetary developments abroad. In this paper, it is argued that market forces, such as a global saving glut, play a more important role in setting interest rates than central banks.     

Who Supports the ECB? Evidence from Eurobarometer Survey Data

This paper studies the determinants of the support for the European Central Bank (ECB) in the member countries of the European Monetary Union (EMU) and their evolution from 1999 to 2015. Our contribution is to examine micro‐level sociodemographic characteristics from the Eurobarometer surveys jointly with macroeconomic indicators of trust in a central bank in order to evaluate econometrically their relative importance over time. Pseudo‐panel logit estimates reveal that the former have a dynamically stable, and generally stronger influence taken altogether, when compared with the latter. Interestingly, we find that while expected inflation becomes a positive determinant of trust in the ECB after the global financial crisis (GFC), actual inflation gets no statistical significance. Having taken centre stage in the monetary policy debate in the Euro‐area post‐GFC and especially since 2013, excessive disinflation and risk of deflation attracted strong attention by the public and have consequently affected its perceptions about the ECB. Accordingly, our results emphasise forward lookingness of the EMU population with regard to ‘deflation scares’ in determining trust in the ECB, in addition to disentangling the contributions of the key individual‐level sociodemographic factors, and can duly inform ECB's communication strategy.     

Pay Inversion at Universities: Is it Ethical?

This paper examines an important issue facing academia-pay inversion. It discusses how inversion is accompanied by ethical issues including secrecy, moral dilemmas for faculty, honesty, and keeping promises. It then examines this issue from five ethical viewpoints: a legalistic perspective, ethical egoism, utilitarianism, distributive justice, and Kants deontological approach. As part of the discussion, the effect of the moral philosophy on the universitys corporate culture is examined, with attention given to morale and productivity. Finally, alternatives to pay inversion that universities may want to consider are discussed.     

Innovation at the workplace: Do professional competencies matter?

This paper analyzes individuals' propensity to innovate in professional environments, by focusing on the specific competency profile of individuals who play a role in the incorporation of product, technological, and knowledge innovations at work. The analysis draws on economic and managerial literature on innovation, innovative behavior, and competencies to gain a better understanding of the relationships between the process of competency development and innovative behavior in working environments. Using data from REFLEX, a European survey on the transition from higher education to labor markets, the empirical component of this study estimates discrete response models to explain the propensity of individuals to innovate at work. The models take the responses to a set of 19 questionnaire items as the basis for determining individuals' competency profiles, while also incorporating firm, working environment, and personal characteristics. The estimation results provide evidence of significant marginal effects of specific competencies on the probability that individuals act as innovators at the workplace. Competencies such as alertness to new opportunities, ability to present products, ideas or reports, ability to mobilize the capacities of others, ability to come up with new ideas and solutions, and ability to use computers and the Internet appear to have stronger marginal effects on the likelihood of innovating and, consequently, emerge as key competencies in explaining the propensity of individuals to become innovators in their working environments.     

Is your C-suite risk literate?

Managing risk effectively is essential for business success, and thus understanding risk is vital for business executives. Effective risk management increases firm value, whereas poor risk management will damage shareholder wealth. In this article, we examine the risk literacy of business executives and find significant variation among the leaders we sample. Our findings suggest that business executives would be well served to evaluate their own risk literacy, and remediate, if necessary; to work to increase risk literacy in the company’s employees; and to include risk literacy as an important and routine part of the firm’s overall culture. Because the importance of risk literacy increases with business complexity, we believe that risk literacy will only become more important in the future.     

Damage at the Pump: Does Punishment Fit the Crime?

We use time-series analysis to estimate the economic damage caused by the uncovered retail gasoline cartel in the city of Sherbrooke. We calculate both the total overcharge and the deadweight loss using a Marshallian demand curve. We find that total damages for the period spanning from January 2000 to May 2006 can be as high as $16.2 million expressed in 2002 Canadian dollars. We compare the total damages from this price fixing conspiracy in the city of Sherbrooke to the meted punishment for all of the investigated markets and find the latter to be a small fraction of the former. We argue that the current enforcement of the Competition Act’s conspiracy provision is unlikely to deter cartel formation.     

Multiple directorships in emerging countries: Fiduciary duties at stake?

This study investigates the effect of multiple directorships on firm performance, using a database of non‐financial firms listed on the Pakistan stock exchange. Prior literature provides inconsistent evidence on the relationship between multiple directorships and firm performance in an emerging country context, which may be the result of overlooking both the large differences in institutional environments among emerging countries and the dynamic endogenous relationships between board variables and firm performance. We aim to contribute to this academic debate by focusing on directorship appointments to multiple boards in a weak institutional context. Corporate governance practices, such as boards with outside directors exercising their fiduciary duties, are crucial for effective governance in weak institutional environments. However, serving in multiple directorships is expected to compromise the execution of director duties. Using a dynamic system Generalized Method of Moments model, our findings show, indeed, a negative effect of multiple directorships on firm performance in a weak institutional environment. Building on the premise that corporate governance is conditional in nature, we also tested the moderating influence of firm size on this relationship, but we did not find supporting evidence in a dynamic model setting. Our results have important practical implications for policy makers as well as firms.     

Socially Responsible Investing: Is Your Fiduciary Duty at Risk?

Socially responsible investing identifies the fiduciary duty and liability for financial advisors serving individual and institutional clients when consulting in the SRI space. This article first discusses the role of a fiduciary emerging from both a legal and an ethical basis. Further, the special aspects of maintaining fiduciary duty and minimizing fiduciary liability are described as they relate to SRI. A number of recommendations are discussed: legal, ethical, and practice. This study argues that prudence focuses more on the process of decisions rather than their outcomes, as measured exclusively by rate of return.     

Correction: The Euro at 20: Still a Project Projected to Fail?

Intereconomics - In the Forum article “The Euro at 20: Still a Project Projected to Fail?” by Adalbert Winkler in Intereconomics, Vol. 54, No. 2, 2019, p. 90–95, DOI:...     

The ECB’s New Monetary Policy Strategy

The ECB updated its monetary policy strategy for the first time in 18 years in July 2021. Therein, the ECB announced that it is willing to accept a transitory period of moderate inflation overshoot in its efforts to push inflation upwards after a long period of undershooting its target. This study explores whether such an overshoot can be economically justified employing a simple Phillips curve model. The results point to the conclusion that the average inflation rate over the business cycle consolidated about one percentage point below the ECB’s target rate. A temporary asymmetry of the ECB’s monetary strategy seems therefore justified to realign inflation and inflation expectations with the target rate.

     

Do hedge funds time market tail risk? Evidence from option-implied tail risk

This paper focuses on an unexplored dimension of fund managers’ timing ability: Market-wide tail risk implied by information in options markets. Constructing the option-implied tail risk, we investigate whether hedge fund managers can strategically time the tail risk through adjusting their exposure to changes of it. Using an extensive sample of equity-oriented hedge funds, we find strong evidence of tail risk timing ability of hedge fund managers. Furthermore, tail risk timing ability brings significant economic value to investors. Top-ranked funds outperform bottom-ranked funds by 5–7% annually after adjusting for risk factors. Our results are robust to various robustness checks.